Contents

Increasing consumption

The role of capital is to advance men toward their objective in producing consumers’ goods. It allows increased production, but more importantly, it allows man to ac­quire goods which he could not obtain otherwise at all.

For any formation of capital, there must be first saving — a restriction of the enjoyment of consumers’ goods in the present — and the investment of the resources in the production of capital goods.[1]

Reducing consumption

What holds people back from investing more and more into capital goods is the time preference for present goods. If man, other things being equal, did not prefer satisfaction in the present to satisfac­tion in the future, he would never consume; he would invest all his time and labor in increasing the production of future goods. But "never consuming" is absurd, since consuming is the end of all production.[1]

Capital consumption

Because capital is perishable, it must be renewed, if man wishes to enjoy the fruits of higher production. Saving must be repeated over and over, capital could break down and be replaced in whole or be repaired and kept in shape.

Man can avoid the trouble of saving and enjoy a higher consumption now. But if the capital is not replaced, production will later drop. Instead of saving and maintaining capital structure, capital is consumed. In this case, time preference has led man to prefer more present consumption, in exchange for greater losses in fu­ture consumption.[1]